Picking Stocks to Trade

The stock market seems poised for a downturn. Volatile markets are often profitable markets but picking stocks to trade is essential to success. The stock market has had a six year bull run following the crash of 2008 and the Great Recession. Now the prospects of a stronger dollar, higher interest rates and global economic malaise have spooked the market into a downturn. But not all stocks are going to fall and picking stocks to trade is the key to success. As an example CNBC suggests that European stocks may surge as much as seventy percent by the end of next year.

The European economy may appear mired in low growth and low-flation, but shares there are poised to surge as much as 70 percent by the end of 2016, Citigroup said.

“European equities offer investors a historic yield pick-up over both corporate and government bonds,” the bank said in a note last week, adding that the region’s stocks haven’t been this cheap compared with credit for over 50 years.

According to this opinion, if you are looking for stocks that are set to rise you may want to consider ADRs of European stocks. If you looking for stocks to short you may want to look at virtually any US stock that has a large presence overseas.

Is That Success in Euros or Success in Dollars?

Sometimes picking stocks to trade requires a second look. The CNBC article touts European stocks but, because the Euro is falling in value versus the dollar, it will not be hard for European stocks to rise. But if you are investing with dollars you want your profits in dollars as well and not in cheaper Euros. The Economic Times notes that dollar is at a 12-year high against the Euro.

The US dollar scored multi-year highs against the euro and yen in Asia on Tuesday amid starkly diverging outlooks for interest rates globally, while currencies from emerging markets came under mounting pressure from risk aversion.

Driving the dollar was speculation the Federal Reserve would start lifting interest rates from mid-year, while central banks in the European Union and Japan were busy easing policy by buying billions in government bonds.

Of course European and other stocks will rise when denominated in their own falling currencies. Keep this in mind when picking stocks to trade.

Where to Invest/Trade when There Are Higher Interest Rates?

Barron’s stays that rising interest rates hurt high yield bonds the most and they suggest dividend-paying stocks for investors. What investors buy traders can trade.

Don’t ignore interest rates, but other factors can also impact dividend stocks. For instance, dividend stocks tend to lag in high-return market environments and do well in tough, low-growth environments where the yield provides protection. Granted, rate hikes are generally not good for dividend payers. But separate the stocks into two categories — the high-yield, bottom-proxy-type dividend-paying stocks and the lower-yielding companies able to increase dividends at an attractive pace over time. Rising interest rates have a bigger impact on high-yield, bond-type investments.

If rates go up and hurt the overall market there will be a flight to safety which could include dividend stocks. Traders can profit from being first in line before these stock prices rise.

Disclaimer: Trading and investing involves significant financial risk and is not suitable for everyone. No content on this website should be considered as financial, trading, or investing advice. All information is intended for educational purposes only.